An ETF (exchange-traded fund) is a fund that tracks an index or sector and can be bought and sold like a share through most online brokers and are usually low-cost. I’m a fan of them as they allow me to diversify my holdings cheaply, that is, investing in multiple companies by holding a single stock.
I’m now looking at two ETF picks for my portfolio that could have fantastic growth prospects for 2022.
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iShares S&P Commodity Producers Oil & Gas UCITS ETF (LSE:SPOG). The oil and gas sector rallied strongly last year. This particular fund was one of the best performing ETFs of 2021 in that area, increasing by around 70% during the course of the year.
The iShares S&P Commodity Producers Oil & Gas UCITS ETF aims to track the S&P Commodity Producers Oil & Gas Exploration & Production Index.
This measures the performance of some of the largest publicly traded firms involved in oil and gas extraction and development from around the world. US and Canadian energy giants dominate the index, comprising almost 80%. There are five companies from the UK on the list, but these represent less than 2% of the overall holdings.
The fund is already performing well this year, up by 12% year-to-date. Although nothing is certain in investing and a fall in energy prices will certainly hurt this ETF, it’s now looking probable that the price of oil is set to rise. This is likely to have a further positive impact on the earnings of these companies. If this trend in energy prices continues, it’s likely iShares S&P Commodity Producers Oil & Gas UCITS ETF will have another fantastic year.
iShares FTSE 100 (LSE:ISF). In 2021, the FTSE 100 posted its best year since 2016. Looking ahead into 2022, I’m feeling bullish about the Footsie again.
Within my own portfolio, I’ve owned iShares FTSE 100 for some time now. I think it offers me the best access to the FTSE 100 as a whole since it allows me to own all the companies in the index by just holding one share.
Over 12 months, this ETF has increased by around 11%. However, despite a strong start to the year, at the time of writing it has seen a pullback and is currently sitting about flat for the year. This shows that there are headwinds for the FTSE 100 and therefore this fund. Continuing supply-side disruptions and rising interest rates could weigh on possible returns.
However, I’m generally optimistic about iShares FTSE 100 for two main reasons. First, we have some of the highest Covid vaccination rates in the world. As our economy fully opens up, the earnings of these companies should rise. Second, the index is rich in firms operating in sectors that could surge this year such as banking and energy.
For example, HSBC has already seen an increase in its value this year. If interest rates rise further in response to higher inflation, then its share price should benefit. Similarly, BP has also had a good start to the year and if energy prices continue to rise, this should translate into higher earnings.
On balance, I think that this ETF could deliver sizeable gains for my portfolio over the coming year.